Feds bust prescription drug scheme

Preet Bharara, United States Attorney for the Southern District of New York, using a diagrahm showing the drug fraud distribution scheme, announces charges against 48 individuals in a massive Medicaid fraud scheme involving the diversion and trafficking of prescription drugs. (July 17, 2012) Photo Credit: Charles Eckert

A massive prescription drug diversion racket recycled more than $500 million in high-end secondhand drugs, paid for by Medicaid, through an underground interstate network and resold them as new to unwitting customers at pharmacies, law enforcement officials in New York charged yesterday.

Prosecutors accused more than 40 individuals with scheming to buy costly drugs for asthma, HIV and schizophrenia worth $1,000 or more a bottle at steep discounts from Medicaid recipients in poor city neighborhoods, relabel them and then launder them through corrupt distributors in the Southwest back into the retail market at full price.

Displaying pictures of heaps of the roughly 30,000 bottles and 250,000 loose pills seized in raids piled up like multicolored jelly beans, officials described the diversion scheme as "bad medicine" -- "obscenely" profitable and dangerous.

"People with real ailments were induced to sell their medications on the cheap rather than take them as prescribed, while end users of the diverted drugs were getting secondhand medicine that may have been mishandled, adulterated, improperly stored, repackaged and expired," said Janice Fedarcyk, the top New YorkFBI agent.

Federal agents began investigating the black market operation in late 2010 based on informant tips, but NYPD Commissioner Ray Kelly said fortuitous police work -- like a Bronx traffic stop that led to the discovery of 2,000 bottles of AIDS medicine -- also helped.

The 48 individuals charged Tuesday included several networks of "collectors" -- who trolled pharmacies and bodegas in Washington Heights, the Bronx and elsewhere to find sick Medicaid recipients willing to sell their drugs.

The defendants, 16 from New York and New Jersey and others from as far away as Florida and Texas, also included low- and high-level "aggregators" who paid multiple collectors for their hauls, used lighter fluid to remove patient labels, and replaced damaged manufacturer labels with counterfeits.

At the top of the pyramid: so-called corrupt distributors who bought from the aggregators and resold to licensed distributors. Prosecutors charged several men associated with a distribution operation in Sugarland, Texas, and prosecutors said others were under scrutiny.

Manhattan U.S. Attorney Preet Bharara said at a news conference that no beneficiaries, whose prescriptions were paid for by Medicaid, were charged.

He said they were likely people in such "dire straits" that a few dollars were more important than the medication. Kelly said they would sell a drug like the HIV drug Kaletra, listed by Medicaid at $650, for as little as $50 a bottle.

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No pharmacies were charged either, but Bharara responded to questions by emphasizing that the investigation is ongoing. "Pharmacies have an absolute responsibility . . . to not look the other way," he said, adding, "You should expect other shoes to drop."

One complaint filed Tuesday said the corrupt distributors in Sugarland received more than $9 million over a six-month period from a licensed national drug distributor in St. George, Utah, which in turn did $8 million in business with a New York-based pharmacy management business specializing in AIDS patients. Both companies were not named.

Although mishandling of the drugs presented risks, Bharara said there was no evidence so far that anyone was harmed by a secondhand drug.

The highest level aggregators then sold the drugs to nationwide distribution channels. They controlled wholesale prescription drug distribution companies that sold the drugs to pharmacies and other wholesale prescription drug companies.

Pharmacies then dispensed these resold drugs to unsuspecting consumers.